How do you determine Profit Targets?

[kingie_d]

Just a question for those of you who use profit taking targets.

What do you use to determine profit targets?
Fib numbers, fundamentally predetermined fair value, a multiple of risk, astrology???
I personally don't use a profit target but prefer to trail my stops and let the price eventually stop me out.
But I am interested in how people out there work out their profit targets and whether it is done with short, med or long term (or all) systems.

 

[MRC & Co]

I generally use trailing stops now. However, I have used "profit targets" in the past based on fundamental fair value, surprisingly, to reasonably good success. I also maintain horizonal stops if I am "sure" about the company, so risk a bit larger % of my capital in exchange for negating the majority of whipsaws.

 

[BBand]

Hi Kd,
A profit target is just that - a target!, the price does not have tp stop there, it could move well beyond the "target" price.

If you want to talk in terms of targets and use trailing stops - then as price approaches your target - tighten your stop and let price take you out - don't give money back to the market (incase it should reverse before getting to your "target") and take as much from the trade as you can, if it trades through your target.

Targets are just chart formations that have proved to be "repeatable/predictable" with some perceived degree of success

You have to recognise the pattern to start with, and sometimes that can take a bit of imagination

Personally, I do not have any preconceived idea of where I will exit a trade, sometimes I exit before my stop is hit - if its in my best interest

To me a stop is my worst case scenario, but if it is hit - I EXIT IMMEDIATELY

I always use stops on every trade.

Peter

PS Obviously, I am a discretionary trader

 

[motorway]

Targets are just chart formations that have proved to be "repeatable/predictable" with some perceived degree of success

You have to recognise the pattern to start with, and sometimes that can take a bit of imagination

P&F
precisely because
it does not need any imagination
or need a "pattern" as in pattern
P&F gives objective targets

because
it moves diagonally
in stair steps

so much risk should equal so much reward
horizontal should equate to a vertical move

hence why P&F was sometimes referred to as a stop chart
( stopped moving diagonally )

It is only a stop look and listen
and hurdle guide. a measure of relative strength ( in terms of risk in the context of reward )
could make the trend line here more sensitive now

But still .. across & down . across & down

diagonal


motorway

 

[tech/a]

There are some suggestions already.

Common ones are.
(1) Pattern measurements---there are books on these.Triangles,Flags,Pennants,Head and Shoulders,Diamonds Rectangles
Edwards and Magee "Technical Analysis of Stock Trends" the best.ISBN:0-13-904343-8

(2) Support or Resistance.

(3) Fibonacci extensions.
"Fibonacci Applications and Strategies for Traders" Robert Fischer ISBN:0-471-58520-3

Besides P&F Hard to find good publications on P&F Motorway may help
"Three Point Reversal Method of Point and figure Construction and Formations by Burke I have--rarer than Rocking Horse dodo

There is

Elliott Analysis Have many but
"Dynamic Trading" Robert Miner ISBN: 0-934380-83-X

Gann---Noticed Trish Radge has a lot of Gann Books that seem rare on her site.

Steidlmayer.
"Mind Over Markets" Dalton ISBN: 0-934380-50-8
Also known as Market Profile a powerful trading tool.I have much on this topic as well.

All are technical methodologies which use areas or specific points as targets.

A confluence in targets is seen as more powerful than a singular point.
I find measured moves un cannily repetitive with no explaination why they would be.

Targets are a must I believe in short term trading to maximise return in short timeframes.Particularly if trading short

 

[BBand]

And of course there is:

'Getting started in Chart Patterns"
"Encyclopedia of Chart Patterns"
and
"Trading Chart Patterns"
Author : Thomas Bulkowski
Publisher: visit www.wileyfinance.com

May be worth a look ?

PS in answer to timeframe querie - markets are fractal - the same patterns appear across all timeframes

 

[MRC & Co]

Tech, which one (or ones) of the techniques do you personally prefer?

How would you determine a price target through 2) support or resistance?

I gather when you say, "price target" you mean not simply the direction, but an actual target as such?

I use 1) pattern measurements currently (along with fundamental analysis, intrinsic value equations), to determine price targets. And support, resistance to time my entries/exits.

So really, I just look for a stock that is undervalued, fundamentally sound (this can include individual company and sector fundamentals), wait for it to look good from a chart perspective and then enter.

Havent really read into Fib techniques and dont know how you can decide price targets by support/resistance, unless you are looking for it to bounce between a trading range. Not to mention, many trades I enter do not have pattern measurements (head and shoulders etc) where I can actually predict a price target, though you cant really predict price targets through triangles can you, just the way in which it breaks. I simply use price trends and volume analysis.

Cheers for any feedback.

 

[howardbandy]

Greetings all --

In my opinion --

Profit targets are valuable when used with systems that have short holding periods -- intra-day, a few days, or a week at the most -- where the profit target is the cause of the exit a high percentage of the time. In these cases, setting a profit target is a reasonable way to exit a trade that will be exited within a short period anyway, and is not intended to look for a long trend.

But profit targets are not appropriate for trades that hold longer and that look for large, but irregular and inconsistent, profits. In these cases, setting a profit target will often cause premature exit from trades that would have continued on to higher profits. And, if you try to use profit targets with long-term trades, be very careful to avoid data mining when determining the targets.

My recommendation is to use any method you wish to compute the profit target -- Maximum Favorable Excursion, Fibonacci, pivot point, average true range, z-score, whatever -- then test it.

Be certain to reserve some data for out-of-sample testing. The in-sample results will always be good and have no value is estimating the likelihood of future profitability. This (short term holding with a profit target exit) is a perfect type of trading system for validation through use of the walk-forward technique.

Thanks,
Howard

 

[tech/a]

Tech, which one (or ones) of the techniques do you personally prefer?

when it comes to targets I' look at everything in particular looking for a CONFLUENCE in forward projected price points.

How would you determine a price target through 2) support or resistance?

If there is strong overhead resistance if going long then that could well be a good place for a target and this maybe a zone rather than a specific point.Vice versa for shorts.

I gather when you say, "price target" you mean not simply the direction, but an actual target as such?

Yes.

I use 1) pattern measurements currently (along with fundamental analysis, intrinsic value equations), to determine price targets. And support, resistance to time my entries/exits.

So really, I just look for a stock that is undervalued, fundamentally sound (this can include individual company and sector fundamentals), wait for it to look good from a chart perspective and then enter.

Nothing wrong with this.

Havent really read into Fib techniques and dont know how you can decide price targets by support/resistance, unless you are looking for it to bounce between a trading range. Not to mention, many trades I enter do not have pattern measurements (head and shoulders etc) where I can actually predict a price target, though you cant really predict price targets through triangles can you, just the way in which it breaks. I simply use price trends and volume analysis.

Cheers for any feedback.

Targets are targets not lines in concrete.If a target isnt at least 2: R/R out then its not worth taking---if one is closer then chances are you wont get to a more distant one quickly--which maybe important in your style of trading.

Personally I use Elliott,VSA and learn a lot from the masters.

 

[MRC & Co]

Excellent, thanks heaps for that tech.

See how the trading pans out over the next little while, then Ill get my azz over to Radge for the continuation down the knowledge path!

 

[MRC & Co]

Thanks for the tip also howard, interesting to see all the different approaches to trading/investment. Thats why I love it so much! No one right way!

 

[tech/a]

Actually C & Co Buy Howards Book I can thoroughly recommend it just click on his link at the bottom of his posts.

Although Amibroker based excellent for all who are systems developing or devising a trading plan(Which should be tested thoroughly so you know your plan actually is profitable---one of those minor issues no one talks about when suggesting you have a trading plan!!).

 

[MRC & Co]

Actually C & Co Buy Howards Book I can thoroughly recommend it just click on his link at the bottom of his posts.

Although Amibroker based excellent for all who are systems developing or devising a trading plan(Which should be tested thoroughly so you know your plan actually is profitable---one of those minor issues no one talks about when suggesting you have a trading plan!!).

Yeh, I actually took a look at the link and will seriously consider buying once I get through some of the stack I have piled up on my bedside table!

I am definately devising a trading plan as I go. But as far as systems developing, I am hopeless at programming and would NEVER even contemplate trying to develop one on my own.

Mine is as complex as an excel spreadsheet, with results and reasons for trades............

 

[Timmy]

P&F
precisely because
it does not need any imagination
or need a "pattern" as in pattern
P&F gives objective targets

because
it moves diagonally
in stair steps

so much risk should equal so much reward
horizontal should equate to a vertical move

motorway

Motorway - I have seen the PF chart used to give a vertical 'count' - i.e. a target price - based on the width of the horozontal congestion zone (where PF chart ismoving basically sideways). Is this what you are referring to here or there more to it than this?

 

[motorway]

To understand P&F you have to think about what makes the chart move.

Hint------> time is not on the x axis

So what is ?

What is measured on that axis
and what is it's relationship to the y axis ?

Every time the chart moves sideways it is a test.
What is tested ?


Tech mentions MP

P&F is a continuous profile of the market.

Time not being on either axis
is in the Xs themselves in the sense of speed..

The Xs are posted in response to changes in Price Volume and time.
The Xs are price volume and time.

What does a congestion zone represent ?

An area of "differences of opinion"

The chart only moves as these differences of opinion resolve.
This is what makes support and resistance.
It is support and resistance that draw the columns

( The Composite Man )

It was long recognized that P&F charts regardless of the filter
move diagonally ( they will move at different speeds )


This is the relationship of the X axis to the Y axis.

If you have a zone of large differences of opinion
then when these resolve you will have a large move

50/50 ........congestion... pressure
100/0........release.... Ease of Movement

stair steps

P&F is very revealing of the dynamics of demand , supply and the changing
relationship of risk and return..

Horizontal Count .. needs all the fluctuations ( intra day ) to be accurate or a filter size that would not miss such fluctuations.

Vertical Count.. is a measured move, ease of movement , thrust model..
The first move out of congestion
reveals something about the " line of least resistance"

All with the proviso that your filter is not just the bid ask spread..
If a P&F chart moves continuously sideways at speed
It is not a stock you are charting but a roulette wheel

eg random movement ( or a stock that has no sponsorship )

A stock will not move continually sideways at speed
it will slow and stop. given a reasonable filter size some stocks might not post a X for ages..

So the speed of the chart... The changes in speed of posting ( the flow of the creek )
are an important indication too

motorway